When will the deal close?

What does Amaya get in the deal?

Amaya acquires the Rational Group and everything that entails, including:

PokerStars.

Full Tilt Poker.

A number of live tournament poker events, including the European Poker Tour, PokerStars Caribbean Adventure, Latin American Poker Tour and the Asia Pacific Poker Tour, along with branded poker rooms.

A wide array of media, content and programming.

What about PYR Software?

PYR Software, the Isai Scheinberg-founded company understood to be the tech development arm of Rational, was not mentioned in the official release or presentation by Amaya. WickedChops is reporting that PYR is, in fact, part of the sale.

Not announced anywhere yet, but PokerStars/Isai’s PYR Software is part of the sale, according to sources. PYR is basically the development and support system for PokerStars. Read more about it here and here.

How is Amaya paying for the deal?

The deal is an all-cash purchase. Per a slide from Amaya’s presentation, the financing breakdown goes like this:

$1.642 billion of equity in the form of $1bn in convertible preferred shares and $642mm of common equity.

$2.9bn of committed debt, including $2.1bn in senior secured credit facilities and $800mm in a second lien term loan.

How does the price compare to other deals?

PokerStars was valued 11.1x CY13 EV/EBITDA and 4.3x EV/Sales, which was a slight premium to peer group average of 10.2x and 3.1x, respectively. In our opinion, the PokerStars premium is warranted given its leadership position in the global online poker market, double-digit revenue growth over the past 2-years and 39% EBITDA margin, which is a significant premium to the peer group.

Jeff Hwang at Motley Fool reached a similar conclusion, arguing that the valuation “has to be viewed as fairly attractive for what is probably the only gaming business worth owning on the basis of online poker alone, and one that apparently is still growing.”

Who faces the biggest threat from this deal?

Competing real-money suppliers in US

If the purchase smooths the entry of the PokerStars and Full Tilt brands into the regulated U.S. market – and that is a big if – competing operators and competing B2B suppliers have the most to fear from the newly-expanded Amaya.

Land-based US casinos

“The return of the exiled poker giant,” wrote FitchRatings in a research note, “would inhibit the online poker ambitions of big US based operators such as Caesars Entertainment, Boyd Gaming and Station Casinos.”

That’s true. But it’s also true that licensed casinos will be the gatekeepers to online gambling in most states. And therein lies an opportunity for at least one land-based casino operator.

Social gambling operators

Zynga didn’t move much on the news, but its flagship poker product has a lot to lose should Amaya aggressively ramp up social gambling efforts post-purchase, as Baazov has indicated they will.

Per Eiler’s Krejcik: “if Amaya/PokerStars can successfully execute on social/F2P we believe this could be a $200-$400 million revenue opportunity in a few years or 18-35% of Rational Groups revenues in CY13.”

ROW sports and casino operators

The prospect of facing direct competition from PokerStars for casino players is uncomfortable for those operating casino sites in the international market.

The prospect of facing direct competition on sports betting, which accounts for nearly half the market in the UK, is no doubt just south of terrifying. Playtech, William Hill and Ladbrokes all traded down (to varying degrees) on the news.

Could this lead to a PokerStars / Caesars partnership?

The deal results in two bridges between PokerStars / Full Tilt Poker and Caesars that weren’t there before:

Amaya is a platform and content supplier to Caesars’ New Jersey online casino. That’s a close relationship that goes beyond Amaya simply licensing a few slot titles to Caesars.

PokerStars has an established partnership arrangement with Atlantic City casino Resorts that might complicate any PokerStars-related dealings between Caesars and Amaya. That’s where the flexibility of having both the PokerStars and Full Tilt Poker platforms could come into play.

A partnership between Caesars and PokerStars / FTP isn’t a fait accompli. But it’s certainly far more possible now than it was before Amaya’s planned purchase of PokerStars was announced.

Will this deal allow the PokerStars brand / software to enter New Jersey?

I believe the purchase, if completed, will result in PokerStars being approved as a service provider in New Jersey’s regulated online gambling market – assuming the divestiture of Mark and Isai Scheinberg is as total and clean as the announcement suggests it will be.

The Division’s determination is based primarily on the unresolved federal indictment against Isai Scheinberg for the alleged violation of federal gambling statutes, namely, the Illegal Gambling Business Act and the Unlawful Internet Gambling Enforcement Act (UIGEA), and the involvement of certain PokerStars executives with Internet gaming operations in the United State following the enactment of UIGEA.

As this deal sees all previous owners of PokerStars – including Isai Scheinberg – exit the company in the transition, it would appear to satisfy the DGE’s call for divestiture by Scheinberg and “certain PokerStars executives.”

David Rebuck, head of the DGE, has previously referred to the decision to suspend PokerStars’ license application as “a tough one” and that the PokerStars product was “better than anything we’ve tested elsewhere” in comments to GamblingCompliance.com.

DGE Deputy Director George Rover told Gigse.com that his agency is “looking forward to working with Amaya.”

“The Division,” Rover continued, “has always maintained that the licensing process could be reactivated if there were significantly changed circumstances, and by all accounts, this acquisition has resulted in the removal of all previously existing ownership interests.”

That all sounds good, as far as it goes. But PokerStars’ competition will no doubt apply whatever pressure they reasonably can to delay the room’s entry. And, as former Nevada Gaming Control chief Mark Lipparelli told Gigse.com, “the fine details of the deal structure will matter to most US regulators.”

Amaya is a licensed content and platform provider in New Jersey’s iGaming market. Baazov said that PokerStars would be able to be operating in NJ within “a short time” following DGE approval.

Will PokerStars and Resorts maintain their New Jersey deal post-sale?

No word yet from Resorts, although it’s difficult to imagine them walking away now after sticking by PokerStars through the tough times.

As for Amaya, they seem intent on continuing with the deal. A slide from their presentation outlining the sale notes that the “[e]xisting Rational Group partnership with Resorts Casino Hotel would allow launch of online poker operations in New Jersey within weeks if and when regulatory approval obtained.”

What impact would PokerStars have on the NJ market?

The New Jersey online poker market is currently down roughly 50% from the market’s peak in January. The entry of PokerStars would ignite significant interest in the short-term and push the market back to, and perhaps even beyond, that peak.

The site would immediately be a contender for the top traffic spot.

But PokerStars cannot change the facts on the ground in New Jersey. They cannot expand the population of the state. And their immediate impact on issues such as payment processing will likely be minimal.

Ultimately, PokerStars will reinvigorate the New Jersey market in the short term and expand the market in the long term. But a large chunk of their traffic, likely the majority, will be siphoned off from other rooms. This reality could result in the closure or merger of existing rooms, and will certainly discourage additional rooms from entering the market.

Would NJ players be able to play against international players on PokerStars?

Not as things currently stand.

The player pool for PokerStars NJ or Full Tilt Poker NJ would be limited to individuals located within the state. There would be no interaction with players on the international PokerStars / Full Tilt Poker platforms.

There’s certainly some potential in the long run for that sort of player pooling, but it’s difficult to see the pieces coming together until a few years (at a minimum) pass. State-based player sharing will be the first step toward international player pools, and even those agreements are still in the hypothetical stage at this point.

What about California?

Trickier business there.

Amaya believes that the purchase will “expedite the entry of PokerStars and Full Tilt Poker into regulated markets in which Amaya already holds a footprint, particularly the U.S.A.”

Sounds good. But proposed legislation in California excludes not only operators, but also intellectual property such as brands and software connected to online bets taken from the US market after December 31st, 2006.

So-called “bad actor” clauses with such broad scope would, at first glance, continue to block PokerStars – including the software platform – from participation in the market despite today’s deal.

But there’s reason for optimism as well:

If the deal does swing the relationship between Caesars and PokerStars / Amaya from adversarial to cooperative, the bad actor clause could quickly become a paper tiger or vanish altogether.

John Mehaffey has offered up one potential workaround should bad actor provisions make it into the final bill: Amaya could develop a new online poker platform that builds on the institutional knowledge the company has just acquired.

And if New Jersey does approve PokerStars, that could make it tougher for bad actor proponents to justify their position, a fact not lost on California Gaming Control Commissioner Richard Schuetz, who told Gigse.com that:

Dave Rebuck and his team at the New Jersey Division of Gaming Enforcement (DGE) will be one of the first to evaluate this contemplated new entity. This is one of the finest regulatory agencies in the world, with sophisticated investigatory assets and a strong commitment to maintaining a positive image for the industry.

One would have to think that their view would be a powerful voice in how this new entity fits within the US regulatory model.

Above emphasis mine.

We won’t have to wait long to find out. The window for California online poker in this session closes at the end of August.

Will PokerStars and its partners continue to fight bad actor clauses?

It’s unclear what impact, if any, the purchase will have on PokerStars’ proposed partnership with the Morongo Tribe and California cardrooms the Bike, Commerce and Hawaiian Gardens and the coalition’s anti-bad actor clause advocacy.

The coalition may well remain intact as a commercial enterprise. But it seems inevitable that PokerStars’ focus will be consumed by planning and executing the sale and that new owner Amaya will be more interested in building bridges than burning them.

That suggests we could see a softening of the public rhetoric over this issue from the corner of PokerStars and its California partners.

“But,” Mattingley continued, “they would make all of us work much harder and it would expand the market. I would much rather have a small slice of a large pie, than a big piece of a small pie.”

Does this deal accelerate US online poker regulation?

Again, we return to the issue of what relationship Caesars will have with the new owners of PokerStars. If all parties are speaking with one voice, the process becomes an easier one.

But ultimately disagreements between PokerStars and Caesars are not the only, nor the primary, roadblock to online gambling regulation in the United States. A host of other issues and opponents populate that line ahead of the issues between the two, and those issues and opponents will remain regardless of this deal.

So, short answer: Yes, but just a little.

How much was PokerStars making?

From the press release:

In calendar years 2012 and 2013, Oldford Group recorded revenues of $976 million and $1.1 billion, respectively, and adjusted EBITDA of $342 million and $420 million, respectively. Its cash flow from operations in 2012 and 2013 was $267 million and $317 million, respectively.

A slide from Baazov’s presentation offers some additional information:

The release offers no further level of detail regarding Rational’s revenue.

The lion’s share of that most certainly came from PokerStars, with a material contribution from Full Tilt Poker. Estimating the income from tours is trickier.

What changes for PokerStars and Full Tilt Poker players?

Not much, at least not in the short-term – with one major caveat (more on that below).

All of the current teams at Stars / FTP are expected to be maintained. Per the statement:

Rational Group’s executive management team will be retained and online poker services provided by PokerStars and Full Tilt Poker will be unaffected by the Transaction, with players continuing to enjoy uninterrupted access to their gaming experience.

As you know, PokerStars is a consumer facing business which means there is little or no overlap between the two companies that would lead to job losses. The stated intention of Amaya is “business as usual” and to leave things unchanged as much as possible. I can therefore confirm there are no planned redundancies. On the contrary, the clear intention of the acquisition is to take PokerStars on to even greater heights with plans for launches of new products and expansion into new territories, particularly in the US should more states introduce applicable legislation. Such plans will likely lead to growth and job opportunities for the talent that exists in the local market in addition to providing likely increased revenues through direct and indirect taxation.

As a publicly traded company, Amaya would probably face more pressure to exit such markets than the privately-held PokerStars. But a lengthy piece from PokerNews Canada dismisses those concerns and asserts that the Canadian government “simply isn’t that concerned with stopping this activity.”

In any case, today it’s business as usual for PokerStars and FTP in Canada. A PokerStars rep on TwoPlusTwo confirmed that the sites would remain open to the Canadian market, saying “We still plan to serve all current markets, including Canada, and to work to grow the game of poker globally.”

Will Isai Scheinberg settle with the DoJ now?

Rumors that Isai Scheinberg is discussing a settlement with the DoJ have been swirling for months. This deal could represent a step in that direction, providing ready cash for a settlement and (arguably) a greater motivation for Isai Scheinberg to close the chapter completely.

A deal would almost certainly come with an eight or nine-figure fine attached. All parties involved are no doubt keen to reach a resolution, as none benefit at this point from the saga – now boasting a running time over over three years – dragging on.

What does Isai Scheinberg look like?

Questions about Isai’s appearance have become something of a running joke in the industry, as photos of the PokerStars founder have been few and far between over the years.